GRIP Industries is considering a new assembly line costing RM1,600,000. Theinstaliation will ncur a cost of RM350,000 and after-tax training cost of RM105,000. Theassembly line will be fuly depreciated using the simplified straight-ine method over its 3-year depreciable life. Net working capital is expected to increase by RM420,000 at startand the full amount ill be recovered at the end ofup year 3. First year sales areestimated to be RM1,800,00, and illincrease by RM200,000 each year throughout the3-year period. Variable cost is 55% from sales, while fixed cost takes up RM225,000 peryear. At terminal, the assembly line can be sold at RM700,000. GRIP is in the 35 percenttax bracket and has a required rate of returm of 12%A) Calculate the total initial outlay of the project.B) Determine the annual cash flow for the project from year 1 to year 3.C) Calculate the terminal cash flow at year 3.D) Calculate the net present value (NPV) and intermal required rate of return (IRR) ofthe project. Should GRIP proceed with its plan to invest in the new assembly line?

Total Initial Outlay: It refers to the initial investment required to begin a project. These include…

Answered: A) Calculate the total intial outlay of…

A) Calculate the total intial outlay of the project. B) Determine the annual cash flow for the project from year 1 to year 3. C) Calculate the terminal cash flow at year 3.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

GRIP Industries is considering a new assembly line costing RM1,600,000. The
instaliation will ncur a cost of RM350,000 and after-tax training cost of RM105,000. The
assembly line will be fuly depreciated using the simplified straight-ine method over its 3-
year depreciable life. Net working capital is expected to increase by RM420,000 at start
and the full amount ill be recovered at the end of
up year 3. First year sales are
estimated to be RM1,800,00, and illincrease by RM200,000 each year throughout the
3-year period. Variable cost is 55% from sales, while fixed cost takes up RM225,000 per
year. At terminal, the assembly line can be sold at RM700,000. GRIP is in the 35 percent
tax bracket and has a required rate of returm of 12%
A) Calculate the total initial outlay of the project.
B) Determine the annual cash flow for the project from year 1 to year 3.
C) Calculate the terminal cash flow at year 3.
D) Calculate the net present value (NPV) and intermal required rate of return (IRR) of
the project. Should GRIP proceed with its plan to invest in the new assembly line?

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Payback period. Given the cash flow of two projects-A and B-in the following table, and using the payback period decision model, which project(s) do you accept and which proje period for recapturing the initial cash outflow? For payback period calp What is the payback period for project A? 6 Data Table - X years (Round to one decimal place.) (Click on the following icon D in order to copy its contents into a spreadsheet.) Cash Flow B. Cost Cash flow year 1 Cash flow year 2 Cash flow year 3 Cash flow year 4 Cash flow year 5 Cash flow $12,000 $6,000 $6,000 $6,000 $100,000 $20,000 $10,000 $40,000 $6,000 $30,000 SO $6,000 $6,000 year 6. SO Print Done
There is a project with the following cash flows : Year Cash Flow 0 −$ 23,350 1 6,300 2 7,400 3 8,450 4 7,350 5 5,900 What is the payback period?
Please help me with show all calculation thanku
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$29,000 −$29000 1 14,400 4,300 2 12,300 9,800 3 9,200 15,200 4 5,100 16,800 a) What is the Internal Rate of Return (IRR) for each of these projects? b) Using the IRR decision rule, which project should the company accept? c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects? d) Using the NPV decision rule, which project should the company accept? e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?
What is the minimum cash flow that could be received at the end of year 3 to make the following project "acceptable"? Initial cost = $100,000; cash flows at end of years 1 and 2 = $35,000; opportunity cost of capital = 8% a) $39,256.2 b) $47,347.2 c) $29,494.5 d) $37,250.5
Calculate the NPVs of both Project X and Project Y. Show the NPVs for each project. If the Projects are Independent which would you approve? If the Projects are Mutually Exclusive which would you approve?
(Related to Checkpoint 11.1 and Checkpoint 11.4) (IRR and NPV calculation) The cash flows for three independent projects are found below: a. Calculate the IRR for each of the projects. b. If the discount rate for all three projects is 13 percent, which project or projects would you want to undertake? c. What is the net present value of each of the projects where the appropriate discount rate is 13 percent? a. The IRR of Project A is%. (Round to two decimal places.) Data table Year 0 (Initial investment) Year 1 Year 2 Year 3 Year 4 Year 5 Project A $(70,000) $12,000 18,000 19,000 28,000 33,000 Project B $(110,000) $28,000 28,000 28,000 28,000 28,000 Project C $(420,000) $240,000 240,000 240,000
Here are cash flows for a project under consideration. C(0)= -$8160, C(1)=6180, and C(2)=20280. What is the IRR of the project?
You are given the following cash flows for a project. Assuming a cost of capital of 12.84 percent. determine the profitability index for this project. Year 0 1 2 3 4 5 O 14981 O 1.68/7 O1.7508 1.6245 1.5613 Cash Flow -$1,115.00 $554.00 $622.00 $648 00 $426.00 $216.00
For project A, the cash flow effect from the change in net working capital is expected to be $490.00 at time 2 and the level of net working capital is expected to be $750.00 at time 1. What is the level of current assets for project A expected to be at time 2 if the level of current liabilities for project A is expected to be $2,600.00 at time 2? $2,860.00 (plus or minus $10) $3,840.00 (plus or minus $10) $1,360.00 (plus or minus $10) $2,340.00 (plus or minus $10) None of the above is within $10 of the correct answer
Use the table for the question(s) below. Consider the following two projects: Year 0 Project Cash Flow A - 100 40 50 B - 73 30 30 The payback period for project A is closest to: OA. 2.0 years O B. 2.4 years C. 2.2 years O D. 2.5 years Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow 60 30 Year 4 Cash Flow N/A 30 Discount Rate .15 .15
Keane & Co plc is considering two possible investments. The company requires an Accounting Rate of Return of 12% and payback within 2 years. It has a cost of capital of 12%. Forecast sales and production units Year 1 Year 2 Year 3 Year 4 Contribution per unit Fixed cost per year Initial investment Residual (scrap) value Accounting Rate of Return Internal Rate Return Discount factors at 12% are: Year 1 Year 2 Year 3 Year 4 Year 5 0.893 0.797 0.712 0.636 0.567 Project J 60,000 110,000 80,000 50,000 £40 £800,000 £7,600,000 £300,000 9.5% 8% Project K 30,000 24,000 20,000 12,000 £120 £700,000 £5,500,000 £150,000 19% 18%

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